INSURANCE POLICY INTERPRETATION: A CASE STUDY

Posted By Mark E. Hancock || 2-May-2016

Since insurance policies were first invented, there have been disputes over how they should be interpreted and, given the stakes, the disputes can wind up in court. If your insurance company tells you that your policy does not cover your loss, you certainly are entitled to, and may want to consider, running the situation by a lawyer. The recent case of Ong v. Fire Insurance Exchange (2015) 235 Cal.App.4th 901 is interesting both for its discussion of how the words in an insurance policy should be interpreted and as an example of an insurance company losing an interpretation dispute.

Mr. Ong bought a home in 2007. He apparently rented it out for a while, but the last tenants moved out in February of 2010 and the utilities were turned off.

There was a fire that damaged the home in December 20, 2011 and Mr. Ong made a claim on his insurance. His insurance company, Fire Insurance Exchange, had a fire investigator investigate the fire. The investigator concluded:

“’it appears the fire may have been initiated as the result of an uncontrolled warming fire
started by an unauthorized inhabitant. Signs of possible habitation were present and the
relatively isolated location would permit this. This [sic] presence of firewood in the adjacent room and the mattress next to the large hole in the floor also supports this theory. It is possible the holes burned in the floor by the door were the result of the occupant attempting to throw burning wood outside when the warming fire got out of control.’”

The claims adjustor met with the investigator at the home and noted that there was a bed in the kitchen and that the fire had originated there. She also noted that a transient had likely been in the home and that it looked like an unintentional fire - the result of a warming fire that got out of hand. Despite this, the insurance company denied the claim on the basis that this was vandalism in a dwelling vacant more than 30 days. Vandalism was not defined in the policy. The trial court granted summary adjudication to Fire Insurance Exchange.

The appellate court reversed, stating that the words in an insurance policy are generally to be interpreted in their ordinary and popular sense, looking to how a layperson would interpret them.

Looking to the dictionary, the appellate court noted that vandalism is defined as the willful or malicious destruction or defacement of property and that malicious is defined as having or showing a desire to cause harm to someone.

In granting summary adjudication for Fire Insurance Exchange, the trial court had not consulted the dictionary, or defined malicious in its ordinary sense. Instead, it had utilized a legal definition of malice in law. This, the appellate court held, was error.

The appellate court stated that malice, as understood in the popular mind, means ill-will against a person and not a wrongful act, done intentionally, without just cause or excuse, which was the definition advocated by the insurance company and relied on by the trial court. The appellate court pointed out that the common understanding of language is bedrock, whereas the definition advocated by the insurance company came out of two criminal law cases.

The law is that courts are supposed to interpret the words of an insurance policy in their ordinary and popular sense and in the way a layperson would interpret them (such as by using a dictionary). If you let insurance companies and judges sympathetic to insurance companies interpret the words of a policy, and/or let them apply narrow, legalistic definitions to the words of policies, I think it is likely both that fewer claims will be paid and you will need both a law degree and be up-to- date on the case law to figure out what you are paying for. You would not, in such a situation, be able to just read the policy.

Mark E. Hancock is an attorney in Ventura, who handles personal injury and insurance coverage matters for injured people and insureds.